Technical Look at Tax Rates (1913-Present)

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

57 Responses to “Historic Highest Marginal Tax Rate 1913-2011”

Funny how stubborn and stupid (or corrupt) some republicans can be.
We had the highest Revenue of GDP in 2000…why dont we go back to those rates? And even Total revenue now is barely over 2000 levels….

You are trying to use ‘logic’ and empirical data in an argument with fanatic libertarian fundamentalists.
That’s like using genetics to illustrate evolution to fanatic religious fundamentalists.
They believe in magical fantasy, not data driven evidence, genetics OR evolution. Science and data only drives them further into their denial.
I think you can get more mature responses from children covering their ears and yelling “la,la,la,la, I don’t hear you”.

Of course, passive losses were fully deductible against ordinary income, which allowed wealthy people to shelter a massive amount of income. While there are all sorts of reasons to argue for and against high marginal rates, a simple comparison of marginal rates then versus now teaches little about comparative distributive justice. One might even say that the comparison is so misleading it is disingenuous.

If we can’t figure out the solution, maybe we should reexamine the problem:

Our ruling class is flush with money (directly from the Treasury, via the Fed), and looking for their government subsidiary to cement their assets in place. The average citizen has a small positive or large negative net worth, with virtually no access to any means of wealth creation (but plenty of debt and, unbelievably, even more credit being extended to them), and no representation in government, despite on man/one vote. Our Treasury (owned lock, stock, and barrel by the ruling class), is bankrupt, despite holding the keys to unfettered and limitless liquidity (of which they always seem to have just enough to bestow on their cronies).

Interesting starting point for that graph. Interestingly, the United States declared independence and funded its government prior to 1913. Without making a judgment on whether top marginal rates are too high or low now, you should at least point out that prior to 1913, the top marginal tax rate on income was in the low single digits, and usually 0%.

Why all the name calling? Many like to call out that we had great tax revenues in 1999 – 2000 with higher tax rates. I believe this was due to a stock market bubble, which resulted in unnaturally high capital gains taxes being paid. Shall we have another stock market bubble as the major part of the effort to re-create 1999-2000 tax revenues and those glorious Clinton years?

I agree with TigerHawk. Effective tax rates would be much more meaningful.
Of course, using more informational data wouldn’t be as inciting.
At the very least, do your homework and put in a disclaimer that this isn’t the “Big Picture”.

Petey it is fixed. but if you mean corrected so that it actually does some thing for the nation and society, well that will be difficult.
but if you look hard enough, you will note it looks a lot the early 1900s. and it took 30 more years before it even changed back then. hopefully it won’t take that long to fix this time

Tiger Hawk has the story. Marginal tax rates mean very little when deductions and exemptions are plentiful. reagan slashed marginal tax rates and eliminated the use of passive losses and real estate tax shelters. Effective tax rates went up for many wealthy tax non-payers who were working the system.

I would recommend the word Duplicitous instead of disengenuos for the super liberal “Paying Taxes is Patriotic” who use high marginal tax rates to make their socialist case. Duplicitous has a stronger emphasis on the intention to deceive.

Hey Petey Wheatstraw: Only a few of our ruling class, mostly Goldman(Geithner’s friends) and ex-Merrill are flush with money. Millions of Obama’s union friends in government and automotive jobs are flush with money direct from the nancy Pelosi Bailout Bill of 2009. Why would you complain about a thousand Banksters ripping off the taxpayers for $10 million each and not denounce ten million union members feeding at the teet for ten thousand dollars each.

Does anyone have a list of the “Spending Cuts” being proposed by Democrats or Republicans. Does anyone have a link to a site that shows any real cuts that anyone is talking about. I saw a Democratic list but cannot find it again which showed $1 Trillion of spending cuts consisting of spending increases of $500 billion instead of $1.2 trillion and then counting the $300 billion of interest saved by not borrowing more money. The article did not have any true spending cuts, just a pretense at slowing down the growth in spending.

Other than eliminating National Public Radio subsidy does anyone know of a proposed spending cut which actually involves cutting spending?

I don’t recall anyone bailing out unions. Did they indirectly bail out a corporation with union contracts? Yes. Did the union own a stake in the corp? Indirectly, yes. And as part of the bail-out, even more so (making them stake-holders on more than one level). Did the bond-holders take a haircut? I don’t think so. The difference here is that union members work for a living (and they earn a better living than their non-union counterparts). Their incomes circulate, and are taxed. If they stop working, they are cut off from their income source, and we must borrow to make up for the lost tax revenue. Not so for the TBTF leeches.

Corporations are more liquid than ever, and can borrow at rates the encourage the carry trade as a source of revenue (explain wealth creation under those circumstances), as opposed to relying on their stock in trade to do so. The middle class, including union membership cannot.

That said, I’d rather buy every welfare mom in the country a new Caddy, sooner than feed a bursting-at-the-seams glutton.

BTW: If you think Obama is a leftist, by any stretch of the imagination, you are waaaaay too far to the right. If you think that “only a few” of our ruling lass are flush with money, you haven’t the slightest clue what you are talking about.

machinehead: I agree with you on income tax. We should have a yearly tax on wholly-owned assets and property (including cash/stocks/bonds). 25% with no loopholes AND corporations ARE individuals, should cover it.

> Tiger Hawk has the story. Marginal tax rates mean very little when deductions and exemptions are plentiful.

Indeed. They also mean very little without knowing the income brackets they are being applied to at the time, and, for a broader discussion, the income distribution. The last has changed dramatically over the last several decades.

So, maybe the chart is historically interesting . . . but is there a question being answered?

You say An income tax is patently incompatible with a free society. But it’s great for funding permanent wars. “

However, if we ignore the long history of surtaxes and basically forced loans during the period from 1640 to 1913 Yes, the colonies were involved in multiple wars with France, Spain, and the Indians, all of which were funded by taxes in some form or another. When the Second government was formed with the constitution, the Federal government assumed all of the debts of the various states and localities that were incurred during the war, and set up a tax system to raise money that involved taxes on income. It wasn’t an IRS form, but every state and every locality had rolls of citizens with land and who were merchants, bankers, or skilled laborers and artisans, and these persons paid taxes that were determined by elected officials.

The 1898 war involved operations in the Philippines that lasted well into World War One. The Mexican War was funded in the 1840′s, and actually lasted nearly 8 years. And what about the 100 years war between English lords and French aristocrats. According to your timeline, this was before the income tax, so how come these permanent wars got financed?

Great Britain, Sweden, Switzerland, and France alike have had various forms of income taxes in different forms since the middle ages. They were not called income taxes, but then income was not the same hundreds of years ago. You didn’t have bank accounts and paper country with famous presidents printed on the paper. Wealth and income existed in kind : as land, as labor, or as commodities and retail items. And these items were taxed.

Please stop all the stupid moaning by other posters about having zero income taxes. It is not only incredibly ignorant but woefully lacking in any beneficial merit.

The standard deviation is not statistical masturbation. It is an indication of deviation from the average or most common occurrences.

When Robinson Cano hits .300 for the year, he has 3 weeks of playing when he hits .150. Its a real event.

The fact that marginal tax rates is one standard deviation below the average is different however, because unlike Robinson Cano, we can’t assume that tax rates will hit .400 the last 2 months of the season. The factors involved in how the marginal tax rates are determined are not based upon the talent and work ethic of the “tax rates,” but rather upon societal, cultural, and political factors that have nothing to do with the tax rates.

This very fact, makes the 1 standard deviation difference much more signifigant.

A government works best when people are working and paying taxes. With high unemployment things don’t work very well. Arguing about tax rates at this point isn’t as important as getting people working. The left wants the wealthy to pay more. The wealthy complain that they are already paying most of the taxes and that half of Americans don’t pay any income tax. But I think both sides are missing it on that point. Everyone should pay income taxes. When half of your country isn’t paying income taxes it means you have a problem, and its not the money. Politicians think they are helping people by carving out lower incomes from paying any income taxes. I think this is a mistake. It’s about contributing regardless of the amount of money. In our family, we all have to contribute, even if its only in a small way.
In the 40′s most Americans were willing to pay up to help their country.

According to David Stockman (in a recent 60 minutes interview with Leslie Stahl) : The top 5% income bracket has gained more wealth since 1980 (about 31 trillion dollars) than had been created in all of human history up to that point. Over the last 10 years, 88% of all economic gains went to the top 500 multinational corporations. Over the same decade, the top 10% income bracket gained 440%; and the bottom 90% remained flat (about 4 or 5 percent). This is over 10 years.

In the meantime, the tax rates have dropped by more than half on the top income bracket and the top 500 corporations. This has resulted in a vast end of investment that government revenues not only once provided, but also a huge (the Stockman quote) shift in economic wealth to the top 5% income bracket.

It is not as simplistic as “taxing the rich.” Our economy and society is completely out of balance. The wealth creation and distribution system has become maligned with short-term minded absentee ownership.

One thing Mancur Olson always argued was that whenever you have a high marginal tax rate this is always offset by loopholes. I.E. rich people either spend their time lobbying for low tax rates or lots of loopholes depending on the prevailing political climate.

Yes, but the counter-argument is that rich people always spend their time lobbying for low tax rates and lots of loopholes. Outside of extremes, what certain groups of rich people isn’t specific to whether the tax rates are high or low. The actual factors involve the strength of the government practices which enforce the law, not the prevailing political climate. This is what happens when you reduce the staff of the IRS and the enforcement branches of the FBI under the name of “budget cuts.”

In other words, you don’t avoid raising the rates a little bit just because some people with large incomes will cheat. What you do is called enforce the laws.

It looks like Coburn is back in the game and the Senate is getting to work on a bi-partisan plan. Good!
Coburn said they are using the Bowles-Simpson plan as a guide. It’s about time. I have wondered why in the hell we didn’t go with their plan a long time ago. We had two serious minded and very smart guys spend months on the deficit problem only to put it on the shelf. Obama should have led on this. He should have taken the Bowles-Simpson plan and paraded it across the country and rammed it down congress’ throats.

Napster, we are saying two different things. I am not arguing with you. When half of your country isn’t paying income taxes you have a problem. I am not blaming them. You can tax the wealthy at 100% and it won’t fix that problem. We need people working and paying taxes. Everyone!

I’d also like to see a chart of capital gains tax rates over the years. That’s probably a better depiction of what the wealthy pay.

I would agree with Irwin Fletcher that when half of your country isn’t paying income taxes you have a problem. I also believe that when you have a significantly larger portion of the population that has no skin in the game with respect to the foreign policy this country conducts you also have a problem.

@Irwin Fletcher
When the top 20% of earners have 50% of the wealth while the bottom 20% rake in 3.4% of the wealth, I would argue that it is much more important to have the top 20% paying a much greater proportion in taxes.

@GuinnessFan
Believe it or not, the lower socio-economic classes do “have skin in the game” when it comes to our foreign policy – who do you think are the servicemen fighting our wars?

Just because a lot of people could reduce their taxes with generous deduction schemes does not change the idea that the economy can grow regardless of how much tax we put on the last earned dollar of the richest people. Or are you claiming that not a single person paid the top rate? The fact that rich people could shelter a large amount of income via deductions is just equivalent to raising the brackets. It does not change the fact that taxes were a lot more progressive on the top of the top of income earners. And contrary to certain popular fiction they did not go on strike even at 94%.

The fact that before 1913 we had a society so simple that it didn’t need much of the total GDP to create a functional frame for peoples productive economy, makes it pretty idiotic to ask for including data from before that time.

The fact that you can change what people are allowed to game the system and how, also is irrelevant for the fact that some rich people lived survived and prospered under a 94% marginal rate. So the question answered is whether society collapse and rich people stop working when marginal rates go higher – and the answer is NO.

What I find interesting is that (since WWII) no matter what the marginal rate was, the revenue generated by income taxes stayed pretty stable as a percent of GDP (except during the late 90′s tech bubble when presumably the capital gains portion swelled).

I think what this tells us about marginal rates is that, as with increasing the capital gains rate, while it might make us feel better to “soak the rich” it may well diminish the ultimate total of tax revenue available. I suspect any deviation from a (low) flat tax with no deductions assessed on everyone equally is the maximum revenue generator. Any “social engineering” that we engage in through the tax code is going to only serve to reduce federal revenue.

Those making nothing (including those on welfare — estimated at 30 million. or 1/10th of the population, who collect full or partial benefits). The unemployed (soon to be welfare recipients. Thats another 14 +- million, or another 5%+-). Those who itemize, and have the loopholes/deductions to effectively cancel their taxes (I doubt these folks are found substantially in the lower two brackets, except for people having too damned many kids, or who take the mortgage interest deduction). Those wealthy enough to avoid/evade taxes.

So far, 15% of our population pays no income tax due to poverty and or unemployment.

“Bob Williams, a tax policy specialist at the nonpartisan Urban Institute-Brookings Institution Tax Policy Center, said this is largely carried out through popular tax breaks, which are sometimes called “tax expenditures.”

“There are lots and lots of them,” he said. “We estimate they total more than a trillion dollars a year in reduced taxes, and in fact the bulk of those go to the top end of the income distribution.”

However, because high earners have so much income liability, the breaks they get still don’t lower their taxes to zero. By contrast, popular lower- and middle-income breaks such as child credits and mortgage interest deductions do get a big share of the population off the hook.”

So, when your mortgage interest and child tax credits are taken away, Mr. and Ms. Middle Class American, you will, once again, have gotten EXACTLY what you asked for: The deadbeats to pay their fair share.

Didn’t think you were talking about your own demographic, did you?

But don’t worry, as you are crushed under the weight of your own political choices (including wars, tax breaks for those who can and should pay, off-shoring of jobs and profits, privatization, and subsidies for independent, self-made Junior Capitalists, lowering the taxes on those taking in far more money in a year than you will ever see in a lifetime, and now, to have your available tax dodges removed) — and forced into a situation where you don’t QUALIFY to pay any income tax — things will be all better.

@Petey
“So, who isn’t paying income taxes? … The unemployed (soon to be welfare recipients. Thats another 14 +- million, or another 5%+-).”

The unemployed actually have to pay taxes on their unemployment benefits. My brother was receiving them last year, and I was astonished that he had to pay taxes on his $800 a month unemployment benefits. It seemed like kicking him in the crotch while he was down.

a. 40.8 million of this group made 16,812 or less
b. 62.9 million of this group made 33,542 or less
c. 72.6 million of this group made 59,486 or less

There is no tax money to be had in the lowest quintile. If you squeezed an extra 1000 a year out of the second quintile of 22,200 non-payers – a significant assessment – you’d return 22 billion – chump change really, especially when you have DOD budgets in excess of 700 billion. By now we’ve accounted for 63 million of the 76 million non-payers. The third quintile yields 9.8 million more, but my guess is that many in this group were beneficiaries of child credits, and education and payroll credits rolled out as part of the stimulus. A family with children making 59,486 or less is going to be squeezed in this economy, and you’re not going to find significant sources of additional (income) tax reveneue for the most part at this level (eg, 2K * 9.8 million is less than 20 billion).

The real money sits in the last two quintiles, and especially the highest. This isn’t an argument for higher taxes; it’s just a little closer look at the 46.5 percent of the country that doesn’t pay income tax.

“When half of your country isn’t paying income taxes it means you have a problem, and its not the money”

No; it’s the income distribution. Half of the country doesn’t even make enough money to be liable for income taxes. Clearly we have a huge problem with income distribution.

But it will get worse. Our predatory capitalism is on the way to creating a society where one guy is making 10 trillion/year and the rest of us are making $2/day. At that time we will be in the outrageous situation that only a single person is paying all the taxes and all the rest of us working for him at a salary he determine – pay nothing. I am sure that he will be whining that he is “paying all the taxes” and that some of the sheeple will agree with him that it is unfair.

So, when your mortgage interest and child tax credits are taken away, Mr. and Ms. Middle Class American, you will, once again, have gotten EXACTLY what you asked for: The deadbeats to pay their fair share.

I love when you go at ignorance and propaganda with a sledgehammer :-)

Have you ever wondered how America’s tax levels compare to those of other nations? Here’s an examination of the tax levels of the OECD nations showing which are paying the highest levels of personal taxes:

The United States, despite its massive and growing deficit, has among the lowest taxation level on earned income among all OECD nations and at a rate that is substantially less than most Eurozone nations.

A friend of mine was touting a “fair tax” (he really meant a simple tax)- a consumption tax – where taxes would be collected at the point of consumption. So if you made more than enough to survive that would all grow & compound untaxed – like a universal Roth IRA. But if you were at subsistence everything would be taxed and you’d never have any “coupon clipping” income. Unless one of your kids grew to 7′ the family would be consigned to a permanent underclass while those who had their heads above water would have their wealth grow untaxed. He didn’t see anything wrong with that. I suggested he’d might like living in Brazil.

He’s a neaderthal who thinks everything can be balanced by eliminating fraud & waste (except when it’s Halliburton!)

Have you guys all forgotten about payroll taxes? Last I checked, when the market for labor is slack, payroll taxes are passed onto labor rather than being absorbed by firms competing for talent. There are very few people who pay no taxes: federal, state or local. The are some people who pay no federal income taxes, but that’s not saying the same thing.

The rich should pay more for the infrastructure they benefit from. Owners of stock in corporations benefit from a healthy and educated workforce, plus roads and other forms of trade infrastructure are also important. Owners of companies benefit from these on a scale not available to most Americans. The rich also benefit proportionally more from rule of law as they have more to protect. The poor benefit more from welfare and social insurance. These types of programs can be paid for with some form of national sales tax, which balances the “welfare state effect” with the funding’s regressive nature.

“…prior to 1913, the top marginal tax rate on income was in the low single digits, and usually 0%.”

That’s because prior to 1913 the country was operating primarily on tariff and excise taxes, until the American people rose up en masse and demanded the enactment of a progressive income tax to replace the unfair and horribly regressive tariff and excise taxation of that time.

“Many like to call out that we had great tax revenues in 1999 – 2000 with higher tax rates. I believe this was due to a stock market bubble, which resulted in unnaturally high capital gains taxes being paid.”

You “believe” wrong.

According to the independent non-partisan Congressional Budget Office, the vast overwhelming majority of the increased revenue initially (’93>) resulted from increased federal income tax revenue from higher taxes on the Rich & Corporate, and only later from increased federal income tax revenue from increased economic activity and an expanded national labor pool.

Spending, per se, is not the problem. Lack of revenue is the problem. Therefore, “spending cuts” cannot solve the problem. Not to mention cutting spending in an economic downturn is disastrous. SEE: Britain.

The Rs can’t lose with the current situation, they get to pose as fiscal conservatives (after an 8 year coma during Team Bush) with a little cutting they should be able to push a weak recovery back into recession, maybe reach double digit (official) unemployment and blame O’B.

Even if they suicide vest the process into a default they’ll still be able to blame O’B

Well, the problem with the presumption fest going on on this thread is that the marginal tax rate has jack-dookie to do with revenues collected as it turns out. I would suggest most of you look up an article called “You can’t soak the rich”. The revenues collected have remained very constant as they relate to GDP. In other words it has NEVER NEVER NEVER mattered (except emotionally) how high the tax rate has been, revenues collected stays the same. I would think that some of the left-os would be more familiar with the historical fact that JFK raised taxes to increase revenues —PSYCH! No, JFK lowered taxes because he KNEW that the only way to increase revenues was to increase GDP. Can anyone say “canard”?

I wonder if this stuff is really relevant. I think almost everyone knows that the government and tax policy is ludicrous and the deductions make information like this very incomplete at best.
If this chart is meant to show gross government incompetence and wild political and policy swings It would have much better context if it had the all tax rates along with government spending and the % of people who even pay taxes. That would illustrate the colossal miss management of public resources and who paid for that mis-management at any given time. Also, what I would be interested to see is the efficiencies that should be gained using innovations like Information technology or the fact that we should be better at government in the long run with all this experience. It would be great if it also tracked the % of General, Administrative and Benefit cost from large companies like the S&P 500.

“I would think that some of the left-os would be more familiar with the historical fact that JFK raised taxes to increase revenues – PSYCH! No, JFK lowered taxes because he KNEW that the only way to increase revenues was to increase GDP.”

First off, the so-called “JFK Tax Cuts” that the American RightWing so loves to reference, were not the tax cuts he originally proposed and were not enacted until 1964. JFK was shot dead in 1963.

Second, retroactive tax cuts did not arrive until Reagan’s failed tax cuts in the early 1980s. Back in the 1960s taxes enacted into law during the year did not take effect until January 1st of the following year.

Third, the national economy experienced a dramatic slow-down in 1966, less than 18 months after federal income tax rate cuts went into effect, with GDP going over a cliff from 10.1% down to 1.4% (note that the previous high levels of GDP occurred while the top marginal rate of federal individual income tax was 91%).

the chart doesn’t mean much in terms of policy and revenue creation. A more interesting chart would be the number of exemptions for business that deprive the treasury. until the tax code eliminates all deductions and exemptions of income we will continue to have a tax code that denies the government the income necessary to provide for a modern state.

The debate about tax rates is an exercise in futility once you realize that the purpose of tax rates as levied by Congress is not to fund the government and that Dems don’t want high rates and Repubs don’t want low rates. If either side were to completely win the “tax rate” game, their failed ideologies would be exposed in short order. Better to let the other side have a slight upper hand on the tax rates. It keeps the political fund raising machine grinding. The tax rate debate is the drug that keeps the silly public enraged.

And BR”s point about lifespan (as a comment to Andy T’s point) is a critical one. We wouldn’t be having this whole discussion if people didn’t live to be 85-90 years old now, with the last 30 years of their lives spent living off of entitlements. Businesses have been dropping defined pension plans like a bad habit for years now. And while most do offer some savings plan and perhaps a significantly less burdensome match to that savings plan, they have not picked up the slack for all of their retiring workers needs into the future.

Do they have a duty to those employees once they leave their company’s workforce and move into Del Boca Vista? It’s debatable (I believe they do have some obligation toward long, long time workers). But someone has to pick up that gap for living expenses, and we cannot depend on any government program to fund this growing population with tax CUTS in place. It cannot happen. I’m an accountant by education, but I wasn’t a very good accountant by trade. But even a dumb accountant knows that 1 in minus 1 out doesn’t equal anything more than 0. It’s all out of balance.

So either we stop living so damn long, or business/government join together to find some way to better fund our social security system. This battle between business trying to avoid taxes and government being told to cut back is political theatre. It’s grown tiresome. It’s pointless. And most of us would much rather be watching old episodes of “Hunter” or something with Steve McQueen in it.

That is a very good point. People live much longer past their productive years than they used to do, so they need pensions (savings) to support them for a substantial time of “old age”. Who is responsible for that making sure that support is present, individuals, employers, government? Right-wingers will per reflex say individuals, and although I agree to some extend, in reality it does not work. You can leave the individual responsible for how much luxury (s)he will have in retirement, but the basic survival cannot be left to individuals. Historically most individuals have failed to take responsibility for their basic survival and there is a high social (society) cost when they fail. So either government or employers must be responsible for ensuring people who have worked their whole life don’t fall into deep poverty when they no longer can work. Anything short of that would be another “privatize gains socialize loses” scheme. But when you look between government or employers doing it, by far the most consistent and effective of the two has been government. As you mention when private employers are pushed to produce more profit, one of the first things sacrificed is their social responsibility towards employee’s retirements (since it is a delayed hurt employees don’t realize they were kicked until they have left the company and can’t kick back). So it either has to be a direct government responsibility or indirect by government “forcing” employer’s to do it.

Personally I think social security has done a great job of providing insurance against poverty. It may need a little adjustment with slightly higher taxes to cover slightly better benefits, but it has done a great job of keeping old folks out of poverty. However, those who do not have any other plans for retirement than social security and paying off the house, often end up in unforeseen hardship (even if not outright poor). Things such as automatic enrollment in 401K plans and other requirements that ensure people understand the consequences of their choices could help fixing that problem. Ensuring that people have sufficient funds to live a comfortable retirement should be their own personal choice and responsibility.

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